Employers face jump in health insurance costs

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WALTHAM — Bucking marketplace changes aimed at making health care more affordable, the cost “trend” driving what Massachusetts employers are charged for insurance is expected to climb 5 to 8 percent this year, insurance executives told an employer group Thursday.

That is substantially higher than the state’s target of capping increases in total medical spending at 3.6 percent, a benchmark established last year to bring costs in line with the projected rate of annual economic growth in Massachusetts.

But the insurance executives stressed that their forecast — based on a formula combining the price of health care visits, tests, and procedures with the amount of care used by patients — does not mean the state will fall short of its goal.

But it does mean employees should be ready for more out-of-pocket expenses.

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The underlying cost trend and the state’s medical spending cap are like “apples and oranges,” Andreana Santangelo, senior vice president and chief actuary at health insurer Blue Cross Blue Shield of Massachusetts said. She was speaking before about 100 people at a market outlook summit hosted by the New England Employee Benefits Council at the Waltham Woods conference center.

While the insurers’ trend will influence spending calculations, she said, other factors will also come into play, ranging from capital improvements at hospitals to the wages of health care workers to changes in benefit designs that could boost co-payments and deductibles for employees. Another important factor will be doctors responding to incentives in new risk-sharing insurance contracts that reward them for keeping patients healthy and out of the hospital, Santangelo said.

“The industry is in the trying-a-lot-of-things mode,” she said. “What we now have is a robust network of physicians who’ve drunk the juice about managing total medical costs.”

While the rate of medical-care spending increases has slowed nationally and in Massachusetts since 2009, per-capita spending on health care here remains the highest in the country, said Eric Swain, vice president of sales and account management for UnitedHealthcare of New England. That was reinforced by a report released last month by the state’s Health Policy Commission, which said the state squanders up to $27 billion a year in unneeded care.

“Everybody thinks that costs are excessive now,” said Peter Horman, chief actuary at Neighborhood Health Plan, an insurer owned by Partners HealthCare System. “Everybody knows there’s waste and there’s a lot of unhealthy people out there, and those are problems that have to be fixed.”

In addition to the risk-sharing contracts — which reimburse providers based on health outcomes rather than services performed — insurers have been rolling out programs to guide customers to cost-effective providers in their networks. They are also introducing plans that limit which doctors and hospitals members can go to or charge them more for receiving care at high-priced Boston academic medical centers rather than at community hospitals.

“We’re opening their eyes, we’re keeping them plugged in,” said Anthony Cali, vice president of network and total medical cost management for Cigna’s New England markets.

Duncan Stuart, director of sales for New England for Aetna Inc., said, “The Massachusetts market is changing in very dynamic ways. Employers are starting to embrace tiered networks,” a cost-sensitive model he said is more popular in other parts of the country.

Insurance representatives said provisions in the federal Affordable Care Act, mostly fees and assessments levied on insurers, account for about 1 percent of their projected medical cost trend increase. While some of that is passed on to employers and employees in the form of higher premiums, it is at least partly offset by the law’s preventive care requirements, including the waiving of co-pays for annual physicals.

Health plan executives also said the continued consolidation of hospitals and doctors, encouraged by the federal law as a way to promote more coordinated care, threatens to drive up costs even more in the future as larger health care networks gain negotiating clout.

The predicted increase means employees should be ready to pay more out-of-pocket expenses.

“I definitely see provider consolidation as a risk to the industry,” said Kevin Grozio, vice president for underwriting and actuarial services at Fallon Health.

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